6 New Thematic ETFs With Potential

6 New Thematic ETFs With Potential

These funds give investors exposure to niche areas of the market.

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy
Thematic investing has been around for a long time. For better or worse, countless people pick and choose their investments based on their idea of the next hot trend in the markets.

Like the BRIC (Brazil-Russia-India-China) fad of several years ago, sometimes these themes work, sometimes they don't.

In any case, thematic investing isn't going away anytime soon. ETF issuers know this and they've launched a number of products in recent years that hone in on narrow niches of the market that may appeal to thematic investors.

Here are six of the more interesting launches we've seen.

PureFunds ISE Cyber Security ETF (HACK)

In today's increasingly digital age, most would agree that cybersecurity is extremely important. Almost on a monthly basis, there are reports of hackers stealing sensitive data from major corporations or even government agencies.

With so much attention on hacking and cybersecurity, an ETF tied to the space makes perfect sense. Launched in late 2014, the PureFunds ISE Cyber Security ETF (HACK | C-32) has been a resounding success from an asset-gathering perspective, taking in $1 billion in investor capital, according to FactSet.

HACK's success led First Trust to launch a competing fund in July of last year, the First Trust Nasdaq Cybersecurity ETF (CIBR | F-41), which took in about $100 million in eight months.

Yet as appealing as the cybersecurity theme sounds, HACK hasn't delivered from a performance standpoint. Since November 2014, the fund is down 4.7% compared with a gain of 7.3% for the broader iShares U.S. Technology ETF (IYW | A-99)―illustrating that thematic investing doesn't always work even when it seems like it should.

HACK currently has $735 million in assets under management and a 0.75% expense ratio.

U.S. Global Jets ETF (JETS)

Airlines stocks have been on a tear in recent years, buoyed by strong demand for traveling and plunging oil prices. Shares of Delta Air Lines, the largest U.S. airline, are up sevenfold from where they were five years ago.

For ETF investors, there was no way to get in on that action in a focused way until the launch of the U.S. Global Jets ETF (JETS), which came to market at the end of April last year. It's up 5.3% since then.

To some, an airlines ETF may sound too niche to be investable. But the fund may make sense from a few angles.

For one, JETS can act as a bet on lower oil prices. Jet fuel is one of the largest costs for airlines; thus, they've had a tendency to move up when oil drops (and vice versa).

Additionally, the airline business has a volatile history, with many major carriers filing for bankruptcy over the years, before later coming back and thriving. JETS may be a good way to play the boom/bust pattern in the broader industry.

JETS currently has $55 million in assets under management and a 0.60% expense ratio.

Restaurant ETF (BITE)

The restaurant industry is being shaken up. Fast-food giant McDonald’s is struggling to maintain its dominance, and new, popular fast-casual and casual-dining options are popping up every day.

Perhaps this dynamism in the restaurant industry is a good thing, and the smaller, nimbler competition of today will become the new giants of tomorrow.

That's essentially the investing thesis behind the Restaurant ETF (BITE), which holds an equal-weighted basket of restaurant stocks. By equal-weighting its portfolio, small companies like Zoe's Kitchen get equal representation as such behemoths as McDonald’s and Starbucks.

At least so far, investors haven't been buying into the ETF. The fund has been trading since October of last year, but it has less than $1 million in assets.

Naysayers of BITE may question why there's any reason to invest in restaurants specifically as opposed to the broader consumer discretionary sector. After all, the industry tends to follow the consumer trends that affect the entire discretionary sector, so there may be little advantage to taking on the riskier, more concentrated exposure that BITE offers.

Since its inception in October, BITE is up 0.2%, slightly better than the -1.1% return of the Consumer Discretionary Select Sector SPDR Fund (XLY | A-91) in that period.

BITE has a 0.75% expense ratio.

PureFunds Video Game Tech ETF (GAMR)

The newest launch on this list, the PureFunds Video Game Tech ETF (GAMR), came to market less than a month ago.

A fast-growing market, global video game sales totaled $91.5 billion last year, up 9.4% year-over-year, according to Newzoo. That's expected to grow another 17% to $107 billion by 2017.

With an outlook like that, a video game ETF sounds appealing. GAMR's largest holdings are pure-play video game companies such as Activision Blizzard, Electronic Arts, Capcom and Nintendo.

In the short time the ETF has been trading, GAMR is up 6.2% compared with 5.5% for IYW and 4.5% for XLY.

Loncar Cancer Immunotherapy ETF (CNCR)

One of the thematic ETFs available in the health care space is the Loncar Cancer Immunotherapy ETF (CNCR). As the name and ticker imply, CNCR focuses on the companies involved in creating cancer immunotherapy drugs.

While unique, it's an open question as to why investors should favor CNCR over broader biotechnology funds such as the iShares Nasdaq Biotechnology ETF (IBB | A-66).

As is the case with BITE, simply having a well-defined theme isn't enough; investors must have a compelling reason to take on the concentration risk of these more focused ETFs. In that regard, CNCR hasn't caught on with investors since its October 2015 launch. It only has $13.2 million in assets under management.

Performancewise, the fund is down 12.8% since inception, slightly better than IBB, which is down 13.4% in the period.

CNCR has a 0.79% expense ratio.

Market Vectors Oil Refiners ETF (CRAK)

The Market Vectors Oil Refiners ETF (CRAK | F-20) focuses on a segment of the energy space that is quite distinct from the rest. Oil refiners make their money by processing crude oil into end products such as gasoline and diesel. For them, it's the spread between crude and the end products that matters, not the price of energy products themselves.

In fact, refiners tend to benefit when oil prices are low because it helps increase demand for gasoline and diesel, giving them the opportunity to process higher volumes of crude.

The contrasting fundamentals between oil producers―which dominate broader energy ETFs such as the Energy Select SPDR (XLE | A-91)―and refiners makes CRAK a useful niche product.

Since its inception in August of last year, CRAK gained 3.2% compared with a 5.9% loss for XLE.

CRAK currently has $4 million in assets under management and a 0.59% expense ratio.

Contact Sumit Roy at [email protected].

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.